Willis warns of energy insurer exposures

by Gill Montia

Story link: Willis warns of energy insurer exposures

Willis Energy, the energy consulting firm, has warned that high commodity prices have increased exposures to energy insurers.

Loss levels in the energy insurance sector remained low for the second successive year in 2007, a period of welcome respite following 2005, the worst year on record.

However, there is now a level of apprehension in the market and according to Willis, sharp rises in the price of oil, steel, building materials and contractor day rates have resulted in significantly increased exposures to energy insurers.

In its Energy Market Review, the consultancy refers to “superheated” commodity prices resulting in increased replacement cost valuations and the possibility of long and costly delays in the event of claims.

The review concludes that the potential for severe losses have been increasing, at a time when many asset values remain unrevised for insurance purposes.

Phillip Ellis, chairman of Willis Energy, comments: “While some companies are operating their assets in ways that are far superior to the past, for others the run of good luck is just that. It is very hard for us to accept that this run of low loss activity will continue indefinitely. Ultimately, something will break.”

In 2005, the loss at the Suncor Canadian oil sands facility generated claims in the energy sector of over US$1.3 billion.

In the same year, Aon estimated losses in connection with hurricanes Katrina and Rita, in the Gulf of Mexico, at between US$3.5 billion and US$ 5 billion.